Property investors prioritising capital growth are likely to find more opportunities in the north of England than in London over the next five years, new research has suggested.
A report from Savills predicted that market trends in the coming years will reverse the pattern of recent decades, with the traditional north/south divide being turned on its head.
Between the years of 2019 and 2023, house prices across the UK will rise by 14.8 per cent on average, according to the forecasts.
However, significant differences are likely to emerge between regions, with the north-west seeing the largest increases of 21.6 per cent, compared to single-digit growth in London and the south of England.
One of the key reasons for this is that parts of the UK outside London and the south were slower to recover in the wake of the global financial crisis. As a result, they offer better affordability and more scope for loan-to-income ratios to increase.
This paints an appealing picture for buy-to-let investors looking for a combination of low entry prices and strong potential for growth.
One of the northern cities where this is most evident is Liverpool, which topped the latest Hometrack UK Cities House Price Index after seeing year-on-year growth of 6.9 per cent in September 2018.
Despite this, Liverpool’s current average price (£120,500) remained significantly below that of other key locations such as Manchester (£167,800) and London (£484,400).
Liverpool is currently offering a number of appealing investment opportunities, such as Infinity Waters, a triple-tower residential development set to transform the skyline above the River Mersey, and Baltic 56, which gives buyers the chance to tap into the lucrative student accommodation market in the trendy Baltic Triangle area.
The Brexit factor
One of the key conclusions in the Savills report was that affordability, not Brexit, is currently “the major factor for the UK housing market”.
It acknowledged that Britain’s impending exit from the European Union will impact sentiment in the short term, but local market trends will have a bigger effect on price growth in the long run.
Lucian Cook, head of residential research at Savills, said: “Brexit angst is a major factor for market sentiment right now, particularly in London, but it’s the legacy of the global financial crisis – mortgage regulation in particular – combined with gradually rising interest rates that will really shape the market over the longer term.
“That legacy will limit house price growth, but it should also protect the market from a correction.”
Furthermore, trends since Britain’s EU membership referendum have demonstrated the resilience of the housing market, providing further reassurance for investors.
Transactions, not house prices, are often viewed as the “ultimate measure of market strength”, Savills noted, and sales volumes have declined by only 6.9 per cent since the Brexit vote to 1.145 million.
Strong rental growth prospects
In yet another encouraging sign for buy-to-let investors, the report noted that rental value growth is expected to track house prices, increasing by an average of 13.7 per cent over the next five years.
This trend will be fuelled by demand, with difficulties in accessing mortgage finance and limitations in the supply of social housing creating more need for homes on the private rental market.
Mr Cook commented: “Until the market sees a significant injection of build-to-rent stock, rental demand will outstrip supply and rents will rise.”
For investors planning to enter the UK market, the combination of positive price trends in northern England and strong prospects for rental growth could make buy-to-let properties in Liverpool and similarly attractive cities a lucrative option.